Student Loan Forgiveness, What You Need to Know

If you have student loan, you need to learn about the student loan forgiveness options. 3D Animation Production Company/Pixabay

After going to college or grad school for years, it is easy to understand why starting life with a tremendous student loan debt can be daunting and is undesirable. For some people, it can take years to pay, and student loan debt can make it difficult to get loans for other things.

Obtaining student loan forgiveness would surely help many people, whether young or old. Erasing your debt through student loan forgiveness is possible, but only under certain circumstances.

The good news is that there are several ways you can get your student loans forgiven—but it will take time, commitment, and payments.

Current Pause on Student Loan Repayments

Currently, the government’s pause on student loan payments is in effect, but it ends on August 31, 2022, says StudentAid. Once the pause ends, StudentAid warns that your previously automatic payments for student loans may not automatically restart, so you will need to check with your bank or lender to ensure that they do, which may require filling out new forms.

Until you make the necessary arrangements to help ensure forgiveness of your student loans and get accepted into the PSLF program (see below) it will not happen. The same website warns those with student debt to not accept offers for aid that appear from a “pandemic grant” or “Biden loan forgiveness.”

New York University graduates celebrate during commencement ceremonies on May 10, 2007. Some grads will be paying off student loans for years. Mario Tama/Getty Images

The Public Service Loan Forgiveness Program

The government created a program called Public Service Loan Forgiveness (PSLF), which enables student loan debt to be canceled under several conditions. The easiest way is to commit to working in specific fields that are considered governmental or certain non-profit agencies. FinAid says that these fields include government, teaching, nursing, firefighting, public interest law, or the military.

If you are in the PSLF program, another option for obtaining student loan forgiveness is to make payments for 10 years.

Each payment must be for the full payment amount and be made within 15 days of the payment due date. After 10 years of payments, the debt is forgiven. Previously, this program was very strict about paying the minimum amount, but this has been relaxed a little under a recent Department of Education overhaul of the system.

Borrowers who have Direct Loans—or some other types of Federal student loans—may also have their loan payments count toward the 10-year payment period leading to forgiveness. Although they faced rejection before, those payments can now count toward the 10-year mark, but one must apply for the PSLF program by October 31, 2022.

The Income-Driven Repayment Plan

One way to reduce the size of your loan payment, if you cannot get outright forgiveness or just decide you will repay it, is to choose one of four plans based on your income and family size. StudentAid lists The Income-Driven Repayment (IDR) plans as the following:

• Revised Pay As You Earn Repayment Plan (REPAYE Plan)
• Pay As You Earn Repayment Plan (PAYE Plan)
• Income-Based Repayment Plan (IBR Plan)
• Income-Contingent Repayment Plan (ICR Plan)

The top three plans usually only require a payment equal to about 10 percent of your discretionary income. The ICR plan requires 20 percent of your discretionary income, but may be reduced based on your income. NerdWallet mentions that student loan forgiveness with these IDR plans may only occur after you have made reduced payments for 20 to 25 years.

Study the rules and policies to understand whether you can apply for student loan forgiveness. Jacob Lund/Shutterstock

Obtaining Forgiveness After Defaulting on Your Student Loan

Defaulting on student loans is automatic after payments have not been made for 270 days. More than 6 million students are in default now, says StudentLoanPlanner. What some in this position may not realize is that debt does not just go away. Once the pause is over in August, people with defaulted loans will likely hear from collection agencies or lawyers.

People who have defaulted on student loans can expect it to affect their lives for years—unless the debt is forgiven. It can seriously impact your credit score, which will affect your ability to get good loans, jobs, insurance, credit cards, and more. Consistently making payments for the minimum amount and on time are the best way to keep your credit score intact.

If you have defaulted on your loans, it will be necessary to pay it off to clear the debt and your record. You can do this by consolidating your student loans or rehabilitating them. NerdWallet says that private loans are not eligible for rehabilitation.

The advantage of rehabilitating a loan is that it takes the default message off your credit report and it will prevent accruing costs from collection procedures. Most of the time, when consolidating or rehabilitating your loans, lenders will require payments of 15 percent of your discretionary income—but paying less is possible, depending on your situation.

As of this article, President Biden is considering student loan forgiveness of at least $10,000 per borrower, says TheHill. It may be more, but no details are yet available. The promise to provide some kind of loan forgiveness was one of the president’s platform issues when he was a Presidential candidate.

The Epoch Times Copyright © 2022 The views and opinions expressed are only those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.